- 3 -
$22,905.2 Petitioner concedes that MLIC made the payments on his
loans. Petitioners did not report the amount on their Federal
income tax return for 1998. Petitioner was prosecuted for, and
pleaded guilty to, 20 counts of defrauding credit unions and
insurance companies, including MLIC.
Discussion3
Respondent argues that the Form 1099-MISC from MLIC reports
an amount that represents a discharge of petitioner's
indebtedness. Petitioner argues that he did not receive the Form
1099-MISC, and therefore any income it reports is not includable
in income.
Section 61 defines gross income as "all income from whatever
source derived". Section 61(a)(12) provides that gross income
specifically includes amounts received from a discharge of
indebtedness (DOI). A taxpayer may realize DOI income by paying
an obligation at less than its face value. United States v.
Kirby Lumber Co., 284 U.S. 1 (1931). The underlying rationale of
this principle is that a reduction in debt without a
2 The Court notes that the amount identified on the Form
1099-MISC and in the notice of deficiency is less than the amount
of MLIC’s payments. The Court proceeds based on the amount
identified on the Form 1099 and determined by respondent.
3Petitioners have made no argument that the burden of proof
shifting provisions of sec. 7491(a)(1), effective for Court
proceedings arising in connection with examinations commencing
after July 22, 1998, have application to this case, nor have they
offered any evidence that they have complied with the
requirements of sec. 7491(a)(2).
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